Market analysts and investment experts have called on the Nigerian Exchange (NGX) to overhaul its free float requirements, warning that the current framework allows some of the country’s biggest listed companies to maintain extremely low levels of publicly tradable shares, thereby weakening market liquidity, price discovery and investor confidence.
Analysts at Meristem Research argued that the exchange should abolish the provision that allows companies to satisfy listing requirements through a minimum naira value of free float rather than meeting a strict percentage threshold.
According to them, enforcing a mandatory 20 per cent free float for all eligible companies would significantly improve market efficiency and deepen Nigeria’s capital market.
Under existing NGX regulations, companies listed on the Main Board or Premium Board are required to either maintain a free float of at least 20 per cent held by a minimum of 300 shareholders or satisfy a minimum free-float market value of N20 billion for Main Board companies and N40 billion for Premium Board companies.
Critics say this alternative compliance option has enabled several large-cap companies to remain listed despite having only a small fraction of their shares available for public trading.
Among the companies frequently cited are BUA Foods, with an estimated free float of about five per cent, Dangote Cement with less than 10 per cent, and BUA Cement, all of which command enormous market capitalisations despite relatively limited public shareholding.
Capital market analysts said the value-based exemption creates structural distortions that undermine the efficiency of the exchange.
According to the former President, Chartered Institute of Stockbrokers (CIS), Adebola Onagoruwa, one of the biggest consequences is poor market liquidity. He explained that when only a small percentage of shares is available for trading, investors face difficulty executing large transactions without significantly influencing share prices.
“The market capitalisation of a company may run into trillions of naira, but if only five or nine per cent of its shares are available to investors, trading becomes constrained,” one investment analyst said. “That limits participation by institutional investors and reduces overall market efficiency.”
Analysts also warned that low free-float stocks often become “value traps”—shares that appear undervalued based on financial ratios such as price-to-earnings or price-to-book value but prove difficult to trade because of inadequate liquidity.
“In such stocks, investors may find it difficult to exit their positions during periods of market stress, exposing them to avoidable losses,” another market expert noted.
They further argued that concentrated ownership can distort price discovery, making share prices less reflective of genuine market demand and supply while increasing the risk of price manipulation.
According to market professionals, stronger liquidity would naturally increase daily trading volumes, making the NGX more attractive to domestic pension funds, mutual funds and foreign portfolio investors.
Tayo Oyedeji, a fiscal policy partner, PwC Nigeria, pointed out that many developed and emerging stock exchanges require companies to maintain minimum free floats of between 20 and 25 per cent as a condition for listing and continued trading.
